Buffer Joint Ventures

Zhiqi Chen and Thomas Ross

No 19-01, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: While strategic alliances and joint ventures have become important organizational forms promising a variety of efficiency benefits for the economy, a body of research has been building showing that alliances between competitors can have significant anticompetitive consequences. This paper explores a particular kind of arrangement, here called a “buffer joint venture”, in which parent firms create an entity selling products located between their own locations in product or geographic space. Depending upon the governance structure of the joint venture and the timing of price-setting by the joint venture and its parents, the buffer joint venture mayreduce competition between the parents leading to higher prices and profits and lower social welfare. The presence of such a joint venture can also affect the incentives for, and the effects of, collusion by the parents.

Pages: 42 pages
Date: 2019-04-20
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Published: Carleton Economic Paper

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Journal Article: Buffer joint ventures (2020)
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